Edited version of your written advice

Authorisation Number: 1051503947029

Date of advice: 12 April 2019

Ruling

Subject: Lump sum payment from a foreign superannuation fund

Question 1

Is any part of the lump sum benefit paid from your foreign superannuation fund assessable as applicable fund earnings under section 305-70 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes

This ruling applies for the following period:

Income year ended 30 June 2018

Relevant facts and circumstances

You became an Australian resident during the 19XX year of income.

During mid July 2017 you transferred some of the benefits in foreign Pension Scheme #1 to foreign Pension Scheme #2.

During late 2017 you withdrew a lump sum benefit from the foreign Pension Scheme #2, which was paid into your Australian bank account. The exchange rate published on the ATO website for late 2017 was used for the foreign transfer.

The benefits from these foreign Pension Schemes cannot be accessed other than at retirement, death or incapacity.

Reasons for decision

Detailed reasoning

Lump sum payments transferred from foreign superannuation funds

When a person receives a lump sum from a foreign superannuation fund more than six months after they became an Australian resident, the growth they earned on their foreign superannuation during the period when they were a resident of Australia is included in their assessable income as ‘applicable fund earnings’ under section 305-70 of the ITAA 1997.

A foreign superannuation fund is defined in subsection 995-1(1) of the ITAA 1997 as being a fund that is not an Australian superannuation fund. A superannuation fund has the meaning given by subsection 10(1) of the Superannuation Industry (Supervision) Act 1993, which requires that the fund is a ‘provident, benefit, superannuation or retirement fund’.

In this case, the benefits from your foreign Pension Schemes cannot be accessed other than at retirement, death or incapacity and therefore meet the definition of foreign superannuation funds.

Applicable fund earnings

You became a resident of Australia for tax purposes in the 19XX year of income. During late 2017 the lump sum payment from foreign Pension Scheme #2 was transferred to your Australian bank account.

As the lump sum transfer was more than six months after you became an Australian resident, 'applicable fund earnings' will apply.

The applicable fund earnings amount is worked out under either subsection 305-75(2) or (3) of the ITAA 1997. Subsection 305-75(2) of the ITAA 1997 applies where the person was an Australian resident at all times during the period to which the lump sum relates. Subsection 305-75(3) of the ITAA 1997applies where the person was not an Australian resident at all times during the period to which the lump sum relates.

Subsection 305-75(3) of the ITAA 1997 states:

If you become an Australian resident after the start of the period to which the lump sum relates, the amount of your applicable fund earnings is the amount (not less than zero) worked out as follows:

a) work out the total of the following amounts:

i. The amount in the fund that was vested in you just before the day (the start day) you first became an Australian resident during the period;

ii. the part of the payment that is attributable to contributions to the fund made by or in respect of you during the remainder of the period;

iii. the part of the payment (if any) that is attributable to amounts transferred into the fund from any other foreign superannuation fund during the period;

b) subtract that total amount from the amount in the fund that was vested in you when the lump sum was paid (before any deduction for foreign tax);

c) multiply the resulting amount by the proportion of the total days during the period when you were an Australian resident;

d) add the total of all previously exempt fund earnings (if any) covered by subsections (5) and (6).

‘Previously exempt fund earnings’ are any amounts in the lump sum paid to Australia by a foreign superannuation fund which had previously been transferred into that fund from a second foreign superannuation fund. They are included in applicable fund earnings to the extent that they would have been included in assessable income under s 305-70(2) of the ITAA 1997 if they had originally been paid to Australia instead of being transferred to the second foreign superannuation fund.

The effect of section 305-75 of the ITAA 1997 is that only the income earned in respect of the foreign superannuation fund since Australian residency, less any contributions made in that period, is assessed. Further, any amounts representative of earnings during periods of non-residency, and transfers into the paying fund do not form part of the taxable amount when the lump sum is paid.

Foreign currency conversion

Subsection 960-50(1) of the ITAA 1997 states that an amount in a foreign currency is to be translated into Australian dollars. The applicable fund earnings is the result of a calculation from two other amounts and subsection 960-50(4) of the ITAA 1997 states that when applying section 960-50 of the ITAA 1997 to amounts that are elements in the calculation of another amount you need to:

● first, translate any amounts that are elements in the calculation of other amounts (except special accrual amounts); and

● then, calculate the other amounts.

In ATO Interpretative Decision ATO ID 2015/7: Foreign currency translation rules in working out 'applicable fund earnings' under section 305-75 of the ITAA 1997, the Commissioner considered the foreign currency translation rules in relation to lump sum transfers from foreign superannuation funds. The Commissioner determined that the exchange rate at which it is reasonable to translate amounts into Australian currency for the purposes of section 305-75, is the exchange rate applicable at the time of receipt of the relevant superannuation lump sum.

For the transfer made from foreign Pension Scheme #2 in late 2017, the exchange rate applicable to the transfer is the date on which the lump sum was made into Australia

Item

Description

Amount in (£)

A

Amount in the foreign Pension Scheme #1 vested in the taxpayer on the day just before the Residency Date

xxxx

B

Part of the payment attributable to contributions to foreign Pension Scheme during the remainder of the period

0.00

C

Part of the payment attributable to amounts transferred into foreign Pension Scheme from any other foreign funds superannuation funds during the remainder of the period

0.00

D

A + B + C

(The step outlined in paragraph 305-75(3)(a) of the ITAA 1997)

xxxx

E

Amount in the foreign Pension Scheme #1 vested in the Taxpayer when the lump sum was transferred to foreign Pension Scheme #2

xxxx

F

E - D

(The step outlined in paragraph 305-75(3)(b) of the ITAA 1997)

xxxx

G

The proportion of the total days during the period (from the Residency Date to date of receipt) which the Taxpayer was an Australian resident.

1

H

Previously exempt fund earnings (if any)

0.00

I

F x G + H = Applicable Fund Earnings (as future previously exempt fund earnings)

(The steps outlined in paragraphs 305-75(3)(c) and 305-75(3)(d) of the ITAA 1997)

xxxx

Item

Description

Amount in (£)

Amount in (A$)

A

Part of the lump sum attributable to contributions to the Fund

nil

nil

B

Part of the lump sum attributable to amounts transferred from foreign funds into the Fund

xxxx

xxxx

C

A + B

xxxx

xxxx

D

Amount of lump sum in foreign Pension Scheme #2 vested in the Taxpayer when the lump sum was transferred to Australia

xxxx

xxxx

E

D - C

nil

nil

F

All previously exempt fund earnings (if any)

xxxx

xxxx

G

Applicable Fund Earnings attributable to lump sum payment to SMSF

xxxx

xxxx

F-G

Previously exempt fund earnings carried forward

xxxx